The House and Senate Budget Committees this week advanced competing budget resolutions that would create very different rules governing the timing, scale, and substance for tax reform. The House budget resolution would carve out just $4.5 trillion for tax changes and would also create early deadlines and make it very difficult to achieve permanent tax cuts.
Key insights:
- Senate resolution does not include tax changes
- House budget carves out $4.5 trillion for tax reform
- Bills both advance on party-line committee votes
The Senate budget resolution is focused on border security and would reserve tax changes for a future reconciliation bill. Several key Republican senators also wrote to President Donald Trump urging him to avoid sunsetting the tax cuts again, which would be very difficult under the House resolution. The Senate approach may slow down the process for tax legislation and leave arguments over the tax rules for later.
Grant Thornton Insight:
The budget resolution is critical for enacting tax reform, as it carries the reconciliation instructions that allow tax bills to pass the Senate with simple majority votes. The specific rules included in the budget resolution will define the parameters of any potential tax bill and limit and shape what is possible. The $4.5 billion cap for tax writers in the House resolution is potentially only enough to extend the Tax Cuts and Jobs Act for 10 years. It could force members into difficult choices about tax priorities or require significant revenue offsets. It would also set a hard deadline of Sept. 30 for enactment, and could force even earlier action to resolve the debt limit. Budget negotiations, however, are far from settled. The narrow House majority will make it very difficult for any budget to pass, and House and Senate Republicans are likely to continue negotiating over the path forward.
House budget
The House Budget Committee advanced its budget resolution on 21 to 16 party line vote on Feb. 13. The resolution follows the “one big beautiful bill” approach Trump favors and would provide reconciliation instructions across numerous committees for many Republican priorities.
The reconciliation instructions for the House Ways and Means Committee would allow for tax legislation to increase the deficit by no more than $4.5 trillion over 10 years. Other committees were given instructions to reduce deficits by at least $1.5 trillion in total. Importantly, the $4.5 trillion for tax changes could change depending on the actual amount of spending cuts achieved. If mandatory spending cuts fall short of $2 trillion, the $4.5 trillion cap would be reduced by the shortfall. The cap could be increased if by the amount of spending cuts exceeds $2 trillion.
Grant Thornton Insight:
The $4.5 trillion cap is smaller than what tax writers wanted. House Ways and Means Chair Jason Smith, R-Mo., said “four-and-a-half does not allow us to do what the president has requested, but it’s a good first step.” A straight 10-year extension of the expiring provisions in the Tax Cuts and Jobs Act (TCJA) could cost close to $4.5 trillion before any SALT cap relief or new tax cuts. The revenue estimates and growth assumptions by government scorekeepers will be critical, but Republicans are likely to face hard choices between competing priorities. They could save money by extending the TCJA tax cuts for a shorter period. The original sunsets were largely set for eight years to prevent spillover effects from reducing revenue outside the 10-year budget window. A similar eight-year extension would give them extra wiggle room, and an even shorter extension could provide more revenue for other tax cuts. Republicans could also consider tax increase as revenue offsets, and have discussed limiting the SALT deduction for businesses, changing the treatment of carried interest, repealing energy incentives, and targeting tax exempts. Hitting spending targets will also be critical. Failure to make politically difficult mandatory spending cuts could further shrink the tax package, while additional spending cuts could be used to increase the cap and “pay for” tax cuts.
The House resolution preserves a current law baseline, meaning that tax cuts set to expire are assumed to expire and revenue is reduced by extending them. It is difficult to make the TCJA tax cuts permanent under a current law baseline because extensions are expensive and reconciliation rules bar any deficit increase outside the 10-year budget window.
The House resolution is based on the government fiscal year ending on Sept. 30, 2025, which would become the deadline for enacting a reconciliation bill. The resolution also includes an increase debt limit, which could create pressure to act even more quickly. If Republicans intend to address the debt limit through this reconciliation bill, they may need to act as early as June to avoid a default. Lawmakers could also separately address the debt limit with bipartisan legislation, but Democrats may demand policy concessions.
Senate budget
The Senate Budget Committee passed its budget resolution on 11 to 10 party-line vote on Feb. 12 after beating back scores of Democratic amendments. The Senate resolution does not provide reconciliation instructions for tax changes and is meant to be used on a smaller reconciliation bill that primarily addresses immigration enforcement, national security funding and energy policy.
Under the Senate approach, Republicans would first enact a less complex reconciliation bill to quickly address key priorities, and then pass a second budget resolution based on the 2026 fiscal year to provide reconciliation instructions for a larger bill that would include the tax package.
Grant Thornton Insight:
President Trump has expressed a preference for “one big, beautiful bill,” but has not definitively ruled out the two-bill approach. For now, he appears inclined to let congressional Republicans settle the dispute themselves. Using two bills could significantly slow down the process for a tax bill and push enactment well past September. The only real deadline may be when the major aspects of the TCJA expire on Dec. 31, 2025, because withholding changes could become effective immediately in 2026.
The Senate resolution does not address the budget baseline or other rule changes because tax legislation would be reserved for the next budget. Key Senate Republicans, however, are making their views clear, and could push for changes to the House budget if the one-bill approach moves forward. Senate Finance Committee Chair Mike Crapo, R-Idaho, is pushing hard for a current policy baseline, which assumes the extension of expiring provisions. Because the extensions are already built into this baseline, it essentially makes them “free” from a scoring perspective.
Grant Thornton Insight:
It would be much easier to make the tax cuts permanent under a current policy baseline because extending them outside the 10-year budget window would be scored as revenue neutral. Crapo and other tax writers, including Senate Majority Leader John Thune, R-S.D., wrote to Trump on Feb. 12 urging him not to sunset the tax cuts again, which is an implicit endorsement of a current policy baseline. But a current policy baseline creates its own procedural and political challenges. Every provision in a reconciliation bill must have a significant budgetary impact, so Republicans could be required to tweak the TCJA extensions to make sure they score as revenue changes. A current policy baseline has also run into opposition from many House Republicans, particularly deficit hawks.
Next steps
The House and Senate must still work out the differences between their approaches before a budget resolution can be enacted. The Senate could consider its resolution on the floor as early as the week of Feb. 17. The House is in recess until Feb. 24, and passage there could be particularly difficult given the slim majority. Several members of the House Freedom Caucus have also endorsed the Senate’s two-bill approach. The final resolution will be critical to the fate and scope of a tax bill, but it will likely be some time before the tax writing committees begin drafting actual tax bills. The current resolutions make clear, however, that Republicans will face some political and procedural limitations that could force difficult choices. Taxpayers should not assume every one of their tax priorities will be addressed. In the interim, there may be planning opportunities to mitigate the impact of current unfavorable rules, like the limit on interest deductions under Section 163(j) and the drawdown of bonus depreciation.
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